2019 (9) TMI 583 - AT - Service Tax

Tribunal Upholds Service Tax on Subvention Income, Cites Non-Disclosure for Extended Limitation, Imposes Penalties.

M/s. HDFC Bank Ltd. Versus Commissioner of Cen. Excise, Thane-II

M/s. HDFC Bank Ltd. Versus Commissioner of Cen. Excise, Thane-II - TMI Issues Involved:1. Classification of services under 'Business Auxiliary Service.'2. Nature of subvention income.3. Applicability of service tax on subvention income.4. Invocation of extended period of limitation.5. Imposition of penalties under Sections 77 and 78.6. Demand for interest under Section 75.Detailed Analysis:1. Classification of Services under 'Business Auxiliary Service':The revenue contended that the services provided by the appellant to vehicle dealers were classifiable under 'Business Auxiliary Service' as defined by Section 65(105)(zzb) of the Finance Act, 1994. The appellant argued that the subvention income received was interest and not a service. The tribunal held that by providing loans at reduced rates and engaging in joint advertisements, the appellant promoted the sale of vehicles, thus providing 'Business Auxiliary Service' to vehicle dealers. The subvention income was considered as consideration for this service.2. Nature of Subvention Income:The appellant claimed that the subvention income was essentially interest income, compensating for the loss incurred by providing loans at subsidized rates. The tribunal disagreed, stating that the subvention income was consideration for promoting the business of vehicle dealers, not interest. The tribunal referenced the HUDCO case, emphasizing that the method of calculating charges does not change the nature of the service provided.3. Applicability of Service Tax on Subvention Income:The tribunal upheld the demand for service tax on subvention income, classifying it under 'Business Auxiliary Service.' The tribunal cited previous cases, including Speed Finance Service and Tata Motors Ltd, to support this classification. The tribunal concluded that the subvention income was not interest but a consideration for promoting the business of vehicle dealers.4. Invocation of Extended Period of Limitation:The appellant argued that the extended period of limitation should not apply as they were under a bona fide belief that no service tax was payable on subvention income. The tribunal found that the appellant had not disclosed the subvention income in their ST-3 returns and had availed CENVAT credit for input services related to the provision of these services. This non-disclosure and availing of credit indicated an intention to evade tax, justifying the invocation of the extended period of limitation.5. Imposition of Penalties under Sections 77 and 78:The tribunal upheld the penalties imposed under Sections 77 and 78. The appellant's failure to disclose subvention income and incorrect filing of ST-3 returns constituted suppression of facts and deliberate evasion of tax. The tribunal referenced the Rajasthan Spinning and Weaving Mills case to justify the penalty under Section 78 and found the penalties under Section 77 for incorrect filings to be justified.6. Demand for Interest under Section 75:The tribunal upheld the demand for interest under Section 75, stating that interest is a statutory obligation for delayed payment of tax. The tribunal referenced multiple cases, including P V Vikhe Patil SSK and Ballarpur Industries Limited, to support this decision.Conclusion:The tribunal dismissed the appeal, upholding the classification of subvention income as consideration for 'Business Auxiliary Service,' the applicability of service tax, the invocation of the extended period of limitation, and the imposition of penalties and interest. The decision emphasized that the nature of the transaction and the intention behind it, rather than nomenclature, determine tax liability.